Compliance & disputes

Significant capital expenditure

Significant capital expenditure is major spending, such as a fit-out or refurbishment, that a franchisor may require a franchisee to make, and which the 2025 Franchising Code says must generally be disclosed and justified before the franchisee is committed to it.

What it means

Capital expenditure means money spent on long-lived assets like store fit-outs, equipment, refurbishments or technology upgrades, as opposed to day-to-day running costs. In franchising it is a common source of disputes because a franchisor can require expensive upgrades that eat into a franchisee's returns.

The Code limits a franchisor's ability to force unexpected capital spending. As a general rule a franchisor cannot require significant capital expenditure during the term of an agreement unless it was disclosed in the disclosure document before the agreement was entered, is agreed by the franchisee, is needed to comply with the law, or falls within specific exceptions.

The 2025 Code strengthened this. Where significant capital expenditure is anticipated, the franchisor must discuss it with the prospective franchisee before they enter the agreement, and explain the rationale and how the franchisee is likely to recoup the outlay. These enhanced obligations took effect from 1 November 2025.

In practice

Before signing, a prospective franchisee should ask what capital spending will be required over the whole term, not just the initial fit-out, and get any mid-term refurbishment cycle in writing. If a refurbishment is likely at, say, year five, that cost belongs in your financial model from day one.

For a franchisor, the discipline is to forecast likely capital demands, disclose them, and be able to explain the payback. Requiring a large unbudgeted fit-out late in a franchisee's term, without prior disclosure or agreement, risks breaching the Code and provoking a dispute.

A real example

A franchisee is two years into a five-year term when the franchisor announces a mandatory $120,000 store refurbishment. If that spending was not disclosed in the disclosure document, agreed by the franchisee, or required by law, the franchisor generally cannot compel it under the Code. Had it been flagged upfront with an explanation of how the franchisee would recoup it, the position would be very different.

Significant capital expenditure — FAQs

Can my franchisor make me spend on an upgrade mid-term?

Only in limited cases: if it was disclosed before you signed, you agree to it, it is legally required, or another Code exception applies. Otherwise significant unbudgeted capital expenditure generally cannot be forced.

What makes expenditure significant?

The Code focuses on major, one-off outlays like fit-outs, refurbishments or equipment, rather than routine operating costs, judged in the context of the particular business.

What must the franchisor explain to me?

Since 1 November 2025, before you sign the franchisor must discuss anticipated significant capital expenditure and explain its rationale and how you are likely to recoup the cost.

Where do I find this disclosed?

In the franchisor's disclosure document and in pre-contract discussions. If a likely refurbishment cycle is not mentioned, ask about it directly and get the answer in writing.

See the full franchise glossary, the Fee Index or our buyer guides.